Custodia Bank and Vantage Bank have announced a tokenized payment solution aimed at integrating bank deposits and stablecoins into a single asset structure. The companies state that the system has been operational on Ethereum since March of this year and is currently being tested with participating banks, with plans to open it to banks and customers in the fourth quarter of 2026.
The same token exists in two forms.
According to the white paper released on June 18, this token switches between legal and operational attributes depending on the context.
Within the Hazel Bank network, it is treated as deposits issued by participating banks. After being transferred to users or platforms outside the consortium, it becomes a stablecoin backed by cash and short-term U.S. Treasury securities. In other words, the underlying asset remains continuous, but its legal identity changes depending on where it is held.
Continue using the existing banking system
Custodia and Vantage say that the Hazel network is designed for tokenized deposits, stablecoins, and other on-chain financial assets, aiming to enable banks to offer blockchain-based payment services on top of their existing infrastructure rather than rebuilding entire core systems.
The whitepaper states that Hazel can operate in parallel with existing core banking software, payment channels, and ledger systems, allowing participating institutions to access on-chain payment capabilities without requiring extensive backend overhauls.
Both companies stated that this solution is designed for financial institutions of all sizes, including community banks and credit unions. One of its design principles is to keep customer deposits within the regulated banking system rather than flowing to third-party stablecoin issuers.
Banks are accelerating their deployment of deposit tokenization.
As the use of stablecoins in payments and settlements expands, banks are accelerating efforts to find alternatives, making tokenized deposits a recently discussed focus.
Earlier this month, The Wall Street Journal reported that The Clearing House, owned by institutions including JPMorgan Chase, Bank of America, and Citigroup, is preparing a tokenized deposit network that could launch as early as the first half of 2027. The system also aims to represent customer deposits in blockchain form for payment settlement.
Meanwhile, some banking groups oppose allowing stablecoin issuers to offer interest-bearing products. JPMorgan Chase CEO Jamie Dimon recently stated that banks will continue to oppose certain provisions of the U.S. cryptocurrency market structure bill, the CLARITY Act, because these arrangements could enable crypto companies to compete for deposits without holding a banking license.
According to DefiLlama data, the stablecoin market size has increased from approximately $251 billion a year ago to around $315 billion. This growth also explains why banks are more actively advancing on-chain payment and deposit tokenization solutions.
Additional information: Prior to the launch of the Hazel project, Custodia had been engaged in years of disputes with regulators over access to traditional payment systems. In March of this year, the U.S. Tenth Circuit Court of Appeals declined to support its effort to reinstate its lawsuit against the Federal Reserve, following regulators’ rejection of the bank’s application for a master account.